Sunday, 21 September 2008

Mishandling the Shipyards` Privitisation

21st September 2008
The Malta Independent - Friday Wisdom

As time unfolds it becomes ever clearer that the shipyards problem is being mishandled.

Most, yours truly included, have agreed that the best way forward for the shipyards is privatisation. Some dissenting voices have suggested that there could be an alternative solution through the formation of a workers’ co-operative to manage the shipyards, but I think we have been there before and it did not work out. Success in the management of an enterprise needs a dose of efficiency, which is hard to come by when there exists conflict of interest between the role of workers and management. The new management that takes over the yard has to risk its own capital to ensure success and a co-operative will find it hard to do so. It would inevitably revert to State support to keep it on its feet.

What I am in total disagreement with is the way the government is going about privatising the shipyards. The government has, by irresponsible choice motivated by political convenience, boxed itself in a corner of an EU deadline for State subsidies that have to end this year. It only started working on privatisation well after the election. Successful privatisations need time, careful planning and meticulous execution. For political convenience, the government denied itself sufficient time and is consequently fudging.

Firstly it makes no sense to offer early retirement schemes in an enterprise about to be privatised. This process could destroy one of the most important resources for the eventual success of the privatised organisation. Apart from wasting taxpayers’ funds, early retirement schemes ensure that the best workers leave to find alternative jobs whereas the least productive stay on making commercial turnaround that much more difficult. This will be factored into the privatisation bidding price so the government is not only forking out money for early retirement schemes but also actually structuring a discounted price in the bidding offers.

Secondly, the government must have known that EU rules are what they are and will not permit State subsidies after end December 2008. So unless privatisation is wrapped up within three months, leaving little room for proper negotiations to ensure that we get a fair price for our assets, the EU will object to writing-off loans given to the shipyards without their being put into liquidation.

There was clearly a more logical way forward. If the shipyards in their present format could not operate without subsidies after 2008, they should have been put into liquidation, discharging all employees. The government could have passed an emergency law delegating the management of shipyards to a temporary council of administration to keep it operating while the privatisation process is going on. During this period, discharged workers should have been attached to retraining schemes to upgrade their skills and imbue them with a commercial culture, so missing at the shipyards, keeping their salary conditions during such retraining period. During the privatisation process the council of administration could source in from the re-training pool workers as necessary for execution of work in hand.

Meantime, the process of privatisation would have proceeded without unrealistic time constraints and bidders would be clearly notified that whereas no imposition on employment of former shipyards employees was being imposed, such employment would be one of the criteria on which bids would be adjudicated. But it has to be acknowledged that it is counterproductive to load unwieldy employment conditions on bidders as this would either scare away serious bidders or be discounted in the bidding price.

This approach would have been completely within EU rules and would have saved millions of euro being paid in wasteful early retirement bonuses, which funds would have been better invested in retraining of employees to enrich their prospect of finding new employment with the new shipyard or elsewhere. It would also have attracted richer and better bids from serious investors who can see scope for re-inventing the shipyards if they can employ the workforce needed, cleansed of the old bad culture that made the shipyards the financial disaster they in fact are.

The Prime Minister re-assured us that the government would not accept any offers for the shipyards, which does not do justice to the value due to the Maltese taxpayers. It is easy to say that, but Mr Prime Minister where is your plan B?

If the best human resources are being incentivised to leave and if no proper offers will be received, what is the government going to do? Clearly, bidders know the government has no fallback position and will be in a weak position to negotiate fair terms with interested bidders.

Jean Claude Juncker, the Prime Minister of Luxembourg, once said that politicians know what needs to done to solve their country’s problems but they don’t know how to get re-elected if they do it. How true! The government should not have given positive reassurances to the nation in general and shipyards’ employees in particular before the election, which reassurances now show were based on hot air and pious hopes rather than concrete reality. Concrete reality would have demanded the privatisation process to be started well before the election in order to execute a diligent and transparent privatisation in good time before the expiry of the no-subsidies deadline at the end of this year.

Political convenience however necessitated that such problems are only taken after the election even if the nation’s interest are prejudiced by allowing unduly tight schedules to meet deadlines. Clearly getting re-elected was more important than tackling the shipyards’ problem with punctuality and correctness.

As we celebrate 44 years of independence today, may the Lord bless this country with true leaders to guide us forward, leaders whose priority is to do what needs to be done rather to organise expensive fudges which preserve expensively their prospect of retaining power.

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